Interest rate shocks fail to dim the great Australian dream

The residential property market stabilised in 2009-10 in line with improvements to domestic, economic and financial conditions.

The resilience of the labour market has maintained consumer confidence levels and minimised the forced sale of residential homes throughout Australia. However, in 2010-11, consumer sentiment turned, with rising interest rates and weak levels of dwelling commencements prevailing in the second half of the financial year. Nonetheless, the market is starting to recover after a brief period of uncertainty.

Over the five years through 2011-12, industry revenue is expected to grow at an average annual rate of 1.5%. IBISWorld estimates that revenue for the residential property operators and developers industry in Australia will increase by about 1.8% in 2011-12 to reach $29.1 billion.

In the future, the industry will go through some minor hardship before renewed success. The interest rate shock has had a greater than expected effect, with consumer sentiment being strongly affected by cost issues such as the carbon tax. However, fundamentally positive economic conditions such as employment and income levels will remain positive, which will promote long-term growth.

Industry at a Glance

Increased access to finance, further population growth and the relative shortage of residential accommodation are expected to further accelerate residential property demand. This growth in demand is likely to be reflected in property and rental value increases during the next five years. As a result, IBISWorld estimates industry revenue will grow by an average annualised rate of about 0.7% over the five years through 2016-17 to reach $30.1 billion.

Products and Markets segmentation

There are several types of residential property in Australia, including separate houses, semi-detached homes and flats. Separate houses or detached homes make up the largest proportion of residential dwellings in Australia, and those that are built by the industry. These houses are freestanding or standalone in their own grounds separated from other dwellings by at least half a metre. Separate homes have dominated the residential sector in Australia over the past 10 years, hovering between 65%-72% of the market. About 80% of households living in separate houses are either completely owned or are in the process of being purchased.

In terms of absolute numbers, building approval values have started to drop in recent years, due to reduced interest in property purchases during the global financial crisis (like every other segment), and since 2010-11 as concerns about proximity to city centres comes to the fore, encouraging higher density development.